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Sedgwick Claims Management Services, Inc. v. Delsman

IP/Entertainment Case Law Updates July 29, 2009

In this copyright infringement case, the court held that plaintiff’s use of copyrighted photographs was transformative for purposes of fair use, even though the photos were unaltered, because the photos were used for a fundamentally different purpose than they were originally intended.

Plaintiff Sedgwick Claims Management Services, Inc. (“Sedgwick”) sued Defendant Robert A. Delsman, Jr. (“Defendant”) for defamation under California law for criticizing Sedgwick in a blog, and for copyright infringement for mailing postcards styled as “WANTED” posters bearing copyrighted photographs of two of Sedgwick’s executives.

The court dismissed Sedgwick’s copyright claim, finding the postcards protected under fair use. The court determined that the first factor, analyzing the purpose and character of the use, weighs in favor of finding fair use because Defendant’s use of the photographs, in the specific context used, was transformative. The Court stated that there is no requirement that the photographs be altered to be transformative, only that, when viewed in context, Defendant used the photographs for a fundamentally different purpose than they were originally intended. The court found that the second factor, the nature of the plaintiff’s work, was neutral since where transformative uses are involved this factor is not significant. The court also found the third factor, the amount of the work used, neutral since the reuse of the entire image was reasonable since the purpose was to mimic a “WANTED” poster. Lastly, the court held that the fourth factor, the effect of the use on the potential market, weighed in favor of finding fair use. The relevant question was not whether the work itself has lost value, but whether the secondary use had usurped the commercial demand for the original. Here, the court found no such demand, since there was no commercial market for them. Even if there were, Defendant’s use of the photographs was sufficiently transformative that it would not be a “substitute” for the original.

The court also dismissed Sedgwick’s defamation claims under California’s anti-SLAPP statute, which provides a procedure for a court “to dismiss at an early state nonmeritorious litigation meant to chill the valid exercise of the constitutional rights of freedom of speech and petition in connection with a public issue.” In deciding an anti-SLAPP motion to strike, the court first determined whether the challenged cause of action arose from a protected activity described in the statute, which states that the challenged statements must have been made in a public forum and involved a matter of public interest. Defendant had urged persons who felt they were treated improperly by Sedgwick to express their concerns to the company and law enforcement agencies. Sedgwick sought to restrain Defendant’s behavior by suing for injunctive relief, in addition to compensatory and punitive damages. The court held that these statements are precisely the type of speech that presents a matter of public interest and should not be enjoined. Second, the court determined that it must decide whether the plaintiff has established a probability of prevailing on the merits of the claim, and that if the plaintiff was unable to provide the factual and legal support for the challenged cause of action, the complaint should be stricken. Therefore, Sedgwick’s burden was to make a prima facie showing of facts through the presentation of evidence that would, if proved at trial, support a judgment in its favor. Here, the Court held that Sedgwick failed to adduce any evidence to meet its burden, and instead simply recited the elements of each cause of action, and that these conclusory allegations standing alone were insufficient to satisfy its burden of demonstrating a probability of prevailing on their claims.